Our government can only spend money that the private sector makes. But capitalism, the motor that drives growth and jobs, is itself in danger. The Cable proposals giving a nudge to shareholders are a chance for it to reboot its role in the wider economy. Capitalism, particularly public companies, is under threat from all sides not least itself, as Marx predicted: capitalists will ultimately self-destruct. Not helped by successive government tax policies that incentivise debt over equity and the present Coalition who have done little to relieve the regulatory burden on business as they promised.
The Regulators themselves have failed their political masters and the industries that paid their fees -- failing to recognise the debt and risks that were allowed to mount. So investors, the pension funds and tax payers have had to pick up the monumental bill. Now we can see signs of private equity being considered more efficient finance for companies than public markets, as London Stock Exchange CEO Xavier Rolet said last week "....regulatory changes are effectively killing the stock markets - for so long the fuel of the UK's economic success." **
The others culpable for the lack of confidence and trust in capitalism sit on the Boards of several of our most important banks and businesses. Some have delivered a below par return on their equity to savers - average 1.7% per annum in the ten years to 2010, but taken sky high rewards for themselves - on average 13.6% over the same period*, with scant reference for shareholder value.
So well done Vince, for giving a lifeline to companies and shareholders and which will hopefully rekindle their relationship. Making shareholder votes on remuneration reports binding should concentrate the efforts of both sides to find an equitable way forward and defuse present animosity. Shareholder involvement is important for the future of capitalism but for equity markets to work, we need the right balance between headlines like Stephen Hester's 'disgusting bonus' and hiring a cheaper less competent CEO. Bonuses were designed to put the flex in companies' cost base - a fixed salary in order to keep costs down and then a bonus on top when profits were good.
Rather than more red tape, giving the power to owners of the businesses is the best way to address these imbalances. Brewin Dolphin's 130,000 private investors all have the opportunity to vote their shares and have done since 1996, whether in their portfolio, their ISA or pension fund. A small but increasing number choose to exercise these rights, which we then publish on our website. We think the principal reason more investors don't vote is that they don't believe they can make a difference - as the Chairman's pockets are stuffed with proxy votes and the big institutions with block votes; or they don't know when the AGM is taking place until after the event.
But this is all now beginning to change. The media is alerting the public to the issues and when contentious votes are looming; the web makes it simple and inexpensive to poll investors' views and to publish them and now votes will be binding. So we believe that other investment and pension fund managers should provide facilities to ask their underlying savers and investors how they would vote at their principal holdings AGMs and then publish these views along side their actual votes, explaining any variance. This way all investors can have a voice, their views considered and the capitalists a chance to reconnect with those who wish to put up their savings as risk capital in UK PLC. In the hope of a decent return to see them through their old age, without relying on the State.
It is not just to say that some bosses are way out of touch with reality - but that we need a more balanced and rational approach from a wider stakeholder group. So rather than just extreme outrage which is so damaging to capitalism (when nationalisation is an even more horrifying alternative) we need more positive engagement from everyone.
** Financial News